March 16 (Bloomberg) -- Coach Inc. faces an upstart with
momentum and brand recognition. His name is Michael Kors.

Since the designer’s company went public three months ago,
his ambitions have become clear. Michael Kors Holdings Ltd. aims
to more than double its North American store fleet to 400 and
more than quadruple to 1,000-plus its department-store
boutiques. Michael Kors will operate in malls and street
locations, like Coach, sell accessories-heavy collections, like
Coach, and focus on “accessible” luxury, yes, like Coach.

While both companies can thrive in the fastest-growing part
of the U.S. luxury-goods sector, Kors may steal Coach customers.

“This is the first mega-brand emerging to take them more-or-less head-on in a direct hit,” said Steven Dennis, founder
of Dallas-based SageBerry Consulting LLC. “That’s definitely
going to impact Coach’s business.”

The fragmented fashion accessories category is ripe for
competition and has attracted droves of growth-hungry bag makers
and investors. Coach said the North American handbag and
accessories market has been expanding at a rate of 10 percent.
In 2011, Americans spent $8.5 billion on bags, according to
Accessories magazine, an industry bible. Coach is now worth
$22.7 billion and Michael Kors $9.1 billion.

“It is a category that has been on fire and it has caught
people’s eye,” Michael Binetti, an analyst with UBS AG in New
York, said in an interview. U.S. brands such as Ralph Lauren,
Kate Spade, Tory Burch and even jeweler Tiffany & Co. are all
chasing accessories-happy shoppers.

Shares Doubled

Michael Kors’s shares have have more than doubled from
their $20 offering price in mid-December, while Coach has
advanced by about a third since then. The Standard & Poor’s
Supercomposite Apparel and Accessories Index gained 28 percent.

Andrea Resnick, a Coach spokeswoman, declined to comment
for this story in keeping with the company’s long-standing
policy of not discussing competitors.

When Michael Kors, a Long Island native and Fashion
Institute of Technology dropout, unveiled his namesake
collection 30 years ago, he focused on pricey, elegant yet
sporty clothes that appealed to Upper East Side ladies-who-lunch. Later, red-carpet denizens such as Angelina Jolie and
Gwyneth Paltrow began wearing his gear.

By 2004, Kors and his team had decided that cheaper
accessories were the more profitable way to go and he added his
secondary line, MICHAEL Michael Kors.

Leather Tote

Today, accessories -- which represent more than 62 percent
of revenue -- are driving sales growth, Kors, 52, said in a
backstage interview last month before his fall 2012 fashion show
in New York. They include a large tangerine “Hamilton” leather
tote for $348, and a “Bedford” satchel in “MK” logo monogram
at $328. Accessories have the major advantage of being free of
sartorial constraints, he said.

“They have no size, no age,” Kors said. “You could feel
you are having a fat day, you can still wear accessories.”

The same year Kors rolled out his second line, he joined
the reality show “Project Runway” as a judge alongside model
Heidi Klum. His sometimes acerbic commentary on contestants’
designs -- “She looks like she got caught in a tornado of
toilet paper” -- introduced his brand to millions of viewers.
At the time, 11 percent of Americans knew the Kors name. Now 71
percent do, according to the company.

Lauren Connection

Kors is led by Chief Executive Officer John Idol, who
previously ran Donna Karan International Inc. and worked at
Ralph Lauren. Shareholders Laurence Stroll and Silas Chou, who
head the private-equity firm Sportswear Holdings and helped
develop the Tommy Hilfiger brand, sit on the board.

Until the company went public in December, few knew how
well it was performing. Turns out revenue soared 68 percent in
its fiscal third quarter ended Dec. 31, while Coach, operating
off a much bigger and older store base, saw a 15 percent
expansion in the same three months.

Michael Kors’s revenue -- which analysts peg at $1.3
billion in fiscal 2012 ending in March -- may surpass $4 billion
in less than 10 years, said Erika Maschmeyer, an analyst with
Robert W. Baird & Co. in Chicago. Per-share profit will rise 30
percent in 2013 while Coach’s will improve 18 percent, said
Brian Tunick, a New York-based analyst with JPMorgan Chase & Co.

CEO Idol, 53, is targeting 35-year-old members of the
global jet set and those who aspire to that lifestyle. The
stores play louder, hipper music than Coach and employ a more
diverse staff, said Paul Lejuez, a Nomura Securities
International Inc. analyst in New York.

Price Points

Coach takes a “portfolio” approach to its product line,
using customer research to help it target different price points
and fashion tastes, said SageBerry’s Dennis, a former senior
vice president of Neiman Marcus Group Inc. Coach said its
customers are college graduates ages 25 and older.

The two brands, though, are “sitting on top of each other
more and more,” because Michael Kors is moving down the fashion
ladder to become increasingly accessible while Coach is trying
the harder task of climbing it, Dennis said.

Coach is no pushover. It has dominated the U.S. luxury
handbag market for more than a decade and powered through the
recession. Coach’s North American handbag and accessories sales
grew 15 percent in the past 12 months, beating segment growth by
five percentage points. Chief Executive Officer Lew Frankfort is
expanding the Chinese and men’s businesses.

What’s more, because Kors is more fashion-oriented than
Coach, the upstart may be prone to profit-eroding fashion
“misses,” according to Barbara Wyckoff, an analyst at Credit
Agricole Securities USA in New York, who warns that Michael
Kors’s extraordinary growth is unsustainable.

When Wyckoff bought a silver-studded Kors bag, she loved it
at first. Then she got bored.